Sweden and Netherlands climb European pension ranks

EUROPE - Denmark still has the best overall pensions system in Europe and the Netherlands and Sweden now sit in joint second place but Portugal and Italian governments need to act to improve people's retirement incomes, according to a study by Aon Consulting.

Details of Aon's annual European Pensions Barometer reveal Denmark is still seen as having the best overall pension system in Europe compared with 24 other nation states, when assessed according to demographics, adequacy of state pension, affordability and sustainability, in part because Denmark's is one of the few pension systems in the world with a surplus through employer and employee contributions.

OECD statistics reveal Denmark's retirement system and demographics actually mean it has a 75% gross replacement rate of work to retirement income for the average earner in Denmark, noted Aon, while lower earners receive 120% gross replacement rate.

However, it also warned "Denmark could become vulnerable in future if reforms do not flow through smoothly" as unions are resistant to increasing the state retirement age beyond 67 from 2027.

Sweden and the Netherlands both managed to improve their positions on the table because Estonia and Latvia were hit heavily by improved data on its demographics and funding, pushing them down from second and fourth place in 2006 to sixth and seventh in 2007.

Interestingly, Ireland and the UK closely follow Sweden and the Netherlands to make it into the top five of overall rankings, but both nations are considered to offer basic State pension, the UK looking worse than Ireland, concludes Aon.

"The inadequacy of the [UK] state system is beyond question, with the system showing last at almost every level of earnings. For an average earner retiring in 2007 the UK replacement rate of 17% is far below the average of 57%. Even the second-lowest ratio of 30% for the Netherlands is double the UK figure," Aon pointed out.

One of the biggest fallers on the pensions scale was Portugal, dropping from 13th in 2006 to 20th in 2007 because of a significant shift in the projected cost of state benefits, while Italy dropped from 23rd to 25th place.

"Latest statistics suggest that Portugal's expenditure on state pensions will be over 20% by 2050 - the second highest in Europe", said Aon.

Bulgaria and Romania were not included in the rankings this year because of a lack of available information, said Aon, both are expected to be included in the future as both nations recently joined the European Union.

To obtain a copy of the Aon 2007 European Pensions Barometer report, click on the attached link.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com